Rhythm & Hues buyer tied to Prana Studios

Actor Suraj Sharma alone on a lifeboat in a water tank against a blue screen… (Peter Sorel / 20th Century…)

A company tied to the Los Angeles-based effects and animation studio Prana Studios has beat out other bidders to acquire Rhythm & Hues, the Oscar-winning visual effects house that filed for bankruptcy protection last month, a source close to the deal said Thursday night.

The sale, terms of which were not disclosed, is subject to approval by the U.S. Bankruptcy Court at a hearing on Friday morning.

If approved by the court, the sale would end a closely watched auction of one of Hollywood's best known visual effects companies whose financial woes have come to symbolize the challenges faced by an industry that was pioneered in California.

The sale also underlines the growing globalization of Hollywood's post production sector. India's Reliance MediaWorks last year joined China's Galloping Horse film and TV company to acquire the Venice-based Digital Domain, the studio co-founded by "Avatar" director James Cameron.

Prana, which has offices in Los Angeles and a fully-owned subsidiary in Mumbai, India, has done computer animation and effects work on such movies as the 2005 film "Hoodwinked!" from the Weinstein Co. and the 2010 Walt Disney Pictures film "Tron: Legacy."

Rhythm & Hues, based in El Segundo, filed for bankruptcy protection under Chapter 11 of the federal bankruptcy code last month after laying off 250 employees, citing several factors, including foreign film tax subsidies and a falloff in feature film work form its major clients.

A company tied to Prana Studios beat out several other competing bids, including one from Prime Focus, which has a large operation in Hollywood; Psyop, a production and design firm; and a company affiliated with the president and principal investor in China Lion, the film distribution business which has an office in L.A.

The original stalking horse bidder -- one intended to draw out other bids -- was South Korean entertainment and media company JS Communications, but it withdrew its offer last week, citing a lack of support from major Hollywood studios.

The new owner is expected to assume responsibility for a nearly $16-million loan extended to Rhythm & Hues by Universal Studios and 20th Century Fox. The loan was part of the effects company's plan to avoid liquidation, enabling it to complete work on current projects, including “R.I.P.D.” and “Percy Jackson: Sea of Monsters.”